If you’re wanting to get into your first home, or give your kids a helping hand on the property ladder, we’ve got some information to set up both parties for future financial success. We’ll break down everything you need to know about guarantor loans now.
What’s a guarantor?
A guarantor is someone who offers financial support to another person to help them buy a home. A guarantor won’t need to front up any money, they’ll just use equity in their own home to provide security to the people who are buying.
How does it work?
The guarantor will be included in the loan documents but won’t be required to make any additional repayments, unless the purchaser defaults on their repayments.
The person who’s buying the house will have a mortgage applied to their account and they’ll be responsible for all repayments on the house, including any set-up and bank fees.
Benefits of a guarantor loan:
- The purchasers won’t need to save a home deposit
- You can reduce fees, such as lenders mortgage insurance (LMI)
- You may be able to borrow up to 105% of the purchase price
- You can set the size of the guarantee to suit your personal situation
What to consider for a guarantor loan:
- If the purchaser defaults, the guarantor could be responsible for the home loan
- If the guarantor’s situation changes, they may not be able to use the equity in their home
- If the purchaser defaults, the guarantor could have the opportunity to keep paying the mortgage and change the title of the property to their name.
What happens down the track?
Once the purchaser has enough equity in the home and can prove they can afford the repayments, the guarantor will be removed from the documents and the purchaser can happily keep paying their mortgage.